New Regulation No. 103/2015 on House Ownership of Foreigners Residing in Indonesia

Indonesia's Cabinet Secretary announced on the Tuesday the 12th of January 2016 that Indonesian President Joko Widodo signed a government regulation on the 22nd of December 2015 (Government Regulation No. 103/2015 on House Ownership of Foreigners Residing in Indonesia) that allows foreigners to own landed houses in Indonesia for a period up to 80 years. This regulation is designed by the Indonesian government in order to provide more legal certainty to foreigners regarding property ownership.

Foreigners eligible to own houses in Indonesia for the designated period are those non-Indonesians who live or work in Indonesia or in other ways bring advantage to the country (for example investors). The foreigner, who needs to have a valid residence permit, will own the house under the so-called ‘right-of-use’ category (in Indonesian: Hak Pakai). On the 28th of December 2015 this new regulation came into effect according to the statement on the website of Indonesia's Cabinet Secretary.

After this new regulation it means that expats can now buy either a landed house or an apartment in Indonesia. However, there are certain requirements and conditions that are important to take into consideration. Based on the new regulation an expat can buy a landed house under the right-of-use category for an initial period of 30 years. After this period, the foreigner can extend the ownership twice, once by 20 years and then extend it by a further 30 years (hence ownership can reach a total of 80 years). Moreover, ownership of the house is inherited by the foreigners' offspring.

However, if the foreigner (or its heir) leaves Indonesia to reside in another country, then he/she needs to release or transfer the ownership rights to another person who meets all requirements to own the property in Indonesia (this can be another foreigner or an Indonesian citizen) within one year after departing from Indonesia. If ownership is not released within one year after the expat has left Indonesia, then the Indonesian government has the right to confiscate the house.

There are two main types of property ownership in Bali: Freehold and Leasehold. In considering your reasons for purchasing a villa, it will quickly become clear which ownership structure is most suitable.

Five or ten years ago, the leasehold structure was the preferred method of purchase in Bali, mainly as it was the easiest system to follow, and land prices were not particularly expensive. Now, due to subsequent land depreciation inherent in this type of ownership structure (the purchaser does not own or control the underlying title of the land, so that they benefit little from the land price increases), it is no longer the preferred method of acquisition. Rising property values, in areas such as Seminyak, Umalas and Petitenget however, now discourage Balinese land owners from selling land outright, and they would still generally prefer Leasehold in some areas of Bali, the leasehold structure is the only option available for acquiring a villa.

It is necessary to carefully examine how a contract is written when acquiring an existing house through a leasehold structure, with careful considerations to pricing and lease extensions. Most lease agreements have some sort of extension option, although you should be careful to fully understand the means by which the extension may be activated. Sometimes the extension can only be activated by mutual agreement, which means that the time at which extension discussions can begin must also be agreed upon mutually by the landowner and the leaseholder. This can lead to problems if the landowner does not agree to give an extension at the time the leaseholder requires it.

Secondly, many contracts are unclear about the cost of extending and often use the term “market price” to indicate the price for the extension. Oftentimes the leaseholder (who has invested considerable money into a villa) might wind up in a disadvantaged situation where the landlord can set a price and say, “Pay this amount or give me back the house.” The best forms of lease extensions are the ones that are indexed to physical commodities and the option is exercised by the sole decision of the leaseholder.

When choosing whether to buy land freehold or leasehold, you should be aware of the ramifications of each with regards to the potential value of the investment. Purchasing land freehold allows you to enjoy the appreciation in the value of the land, which has been fairly dramatic in Bali in past years.

If you opt to purchase land leasehold, you lose out on this, as depreciation starts relatively soon, depending on the term of the lease. Every year that passes on a lease devalues the entire deal. For example, if you have got 30 years on a lease, it actually might appreciate for the first 5 years, but over the next 25 years the value of the whole package goes down. Depreciation is even more dramatic if you invest a large sum of money into renovating the house 5 or 10 years before the end of your lease, as you are improving a facility which you are not going to own in 5 or 10 years. A rising value of the land or improvements of any structures on the land can, in certain situations, offset time driven depreciation.

At the end of any lease, the building and the land is returned to the original landowner. So, by purchasing leasehold, you are, essentially renting the property long term. In the intermediate period you will enjoy the benefits of the property, including the possibilities if sub-letting, but you are denying yourself the potential for capital appreciation on the property. By purchasing freehold, you get the best of all worlds. You have a house in Bali, which you can continue to add to, safe in the knowledge that you have a sellable asset at such time as you choose to sell.

A Typical Transaction

The following summary outlines the essential steps involved in a foreign investor transacting a Hak Milik (“Freehold Title”) property in Indonesia and creating a Hak Pakai (“Right of Use”) certificate of title directly in the name of the foreign investor as an en encumbrance on the underlying Hak Milik.

This certificate of title is highly secured and known as Hak Pakai atas tanah Hak Milik which translates as “Right of Use over Freehold Land”.

Phase A- Due Diligence

The Notary initially checks all aspects of the Hak Milik property and advises in relation to any impediments to acquisition of the Hak Milik property.

Phase B – Hak Milik Transfer

Should the foreigner decide to proceed on the basis of the favorable outcome of the due diligence, the Indonesia Hak Milik owner executes with the nominee/designee of the foreigner, who must be an Indonesian citizen, either:

(a) an Akta Jual Beli (“AJB” or “Sale and Purchase Agreement”) pursuant to which 100% of the purchase price is paid; or

(b) a Perjanjian Pengikatan Jual Beli (“PPJB” or “Agreement Binding for Sale and Purchase”) pursuant to which a deposit is paid subject to payment of the balance of the purchase price. The deposit is generally not held by a stakeholder but is typically paid to the vendor.

(c) Hak Pakai atas Tanah Hak Milik

The Notary executes a Deed of Grant of Hak pakai (“Akta Pemberian Hak Pakai atas Hak Milik”) between the Hak Milik owner/designee and the foreigner pursuant to which the Hak Milik owner grants the Hak Pakai title to the foreigner.

By separate Notarial Deed, the Hak Pakai owner may also prepay to the Hak Milik owner a number of agreed twenty-five year renewals (i.e. 25 years + 3 x 25 year renewals + 100 year tenure).

The Hak Pakai owner obtains a certificate of title in his name and with the agreement of the Hak Milik owner is entitle to keep the original Hak Milik title in his possession until expiration of the term.

The land law in Indonesia is very different from the laws in the occidental countries. Nevertheless it is possible to invest in total security by respecting carefully the proceedings.

In order to do it correctly specific notaries from Bali will be necessary. About the certified land in opposition to the non-registered land to the national register (Badan Pertanahan Nasional). There are 5 categories of rights in virtue of the land law, 3 only concerning the foreigners:

1- Hak Milik (freehold)

This title can only be obtained by an Indonesian citizen.

2- Hak Pakai (right of use)

Similar to a 25 year rent extensible for 20 years and renewable, also available for private individual foreigners (under specific conditions).

3- Hak Guna Bangunan (building right)

Conditions close to Hak Pakai but only for the PMA.

In reality the 2 main ways usually used by foreigners to purchase a land in Indonesia are the followings:

I - The loan of an Indonesian name (Nominee agreement also called "freehold") :

Due to the fact that only an Indonesian citizen can own a land (Hak Milik), the asset will be bought in front of a notary under his name; he will sign several documents giving you the full power of purchasing like for example :

A free hold contract stipulating that the nominee borrowed you money for the equivalent value of the price of the land or the villa.

An irrevocable power of attorney giving you the right to sell, to mortgage, to rent or to use in any different manners the asset without a prior agreement.

A permanent right of use guaranteed in case of the death of the nominee.

A certificate notifying that he is the << fictive >> owner of the property.

There are more advanced agreements that can represent more than 10 different documents.

This method practiced for years by the majority of notaries may be contested in court. It has frequently been doubted by some notaries and politicians.

II - Leasehold

It is a rental contract for 25 years minimum signed in front of notary and renewable once.

Each individual benefits from this right, whatever his nationality is.

This contract will give you the right to change, to build, to operate a business or to rent the place.

It will end at the expiration date and all the new construction present at that time will become then the property of the land owner if no extension had been signed.

III - Long Term Rent / Yearly Rent

Renting a villa on Long Term basis is free of any issues. Renter rents the property directly from owner based on a Rental Agreement between Owner and Renter only.

Usually Long Term Rental periods are between 1 and maximum 5 years. In case of a rental period longer than 5 years we would advise to consider a Lease Agreement

A public meeting was held at The Best Western Hotel in Kuta to discuss the crisis facing people who have bought land and property in Bali under a nominee ownership agreement. There was a large turnout of 300 people including many lawyers and advisers.

It is estimated that there are 48,000 expatriates living in Bali and that there are 6,400 homes and 3,000 commercial buildings owned illegally under nominee ownership agreements. It was also reported that there are around 140 nominee ownership disputes currently in the courts.

It was determined that in nominee ownership agreements an Indonesian owns the land but a foreigner “controls” the ownership. This is contrary to the Agrarian Law and so is illegal and a court would declare all documents invalid and the land would be returned to the state.

Probably the safest way of proceeding is to hand the land back to the government and take out a Hak Pakai (right to use land title) over the land.

1 Hak Pakai is available for foreigners who have resident or temporary resident permits (KITAP and KITAS). They give the person full rights over the land.

2 Hak Pakai is for a period of 25 years which can be extended by a further 20 years and can be renewed for a further 25 years and, presumably, extended for another 20 years. This suggests a maximum of 90 years however at the meeting legal experts suggested that if a person complies with conditions of the Hak Pakai they can be renewed indefinately.

3 Cost of Hak Pakai is nominal – 0.2% of the land value.

4 A foreigner can only own one property under Hak Pakai.

5 Hak Pakai is between the foreigner and the government and so is solid and safe.

For those people who are not residents of Indonesia but have bought a holiday home a solution is not obvious at this stage however for example a Long Term Rental agreement could be an option.

Agrarian Minister and National Land Agency Chief says foreigners owning land will have their lands nationalized

The Minister of Agrarian Affairs who is also the head of the National Land Agency (BPN), Ferry Mursyidan Baldan, told that his office will soon survey and inventorying land “owned” by foreigners in Indonesia.

“It is absolutely not allowed for foreigner to own a single inch of land in Indonesia. This is as stipulated by the National Constitution,” said Ferry afterwards.

The Minister’s comments were also reported by the State News Agency Antara.

The survey and inventorying of land “owned” by foreigners, according to Ferry, must be done to verify that there is no land in Indonesia controlled by foreigners.

“According to international law, only the home of a foreign ambassador and the Embassy can be owned by foreigners (in Indonesia),” he said.

The Minister said there is a great deal of land in Indonesia, particularly in tourism areas such as Bali and Lombok, that it owned (illegally) by foreign nationals.

In Bali and Lombok many foreigners control land through nominee landowners, using legally questionable powers of attorneys and fictive mortgage agreements. The Minister’s statement has many in the property sector concerned that land could be confiscated by the State or documents used to establish illegitimate foreign control of land declared invalid. The latter could create a windfall for the nominee who would then be established as the sole and rightful owner of the land.

When Ferry was asked what sanctions can be imposed on foreign nationals known to illegally own land in Indonesia, the Minister replied “there is no sanction.”

“There’s no need for sanctions, we will just divert possession of the land. We will ask if he has an Indonesian wife and divert the land to her. But, if he doesn’t have an Indonesian wife, then the land will be taken by the State,” Ferry explained.

He assured that the coming survey and inventorying of land ownership thought to be “owned” by foreigners will be done in an orderly manner. “This will not be done in a half hazard way. We are doing surveys (in such a way) as to avoid creating an uproar. We are inventorying, not conducting raids. So there is no need for anyone worrying or being frightened."

Right of Ownership (Hak Milik) This refers to absolute ownership of land and corresponds to freehold title in common law terms. This right can only be held by an Indonesian citizen. It can be sold, transferred, bequeathed, and mortgaged.

LEASEHOLD

Right to Rent (Hak Sewa) This is the right to use, leasing land owned by another private party for building purposes. The right cannot be registered at the land office and therefore does not exist in certificate form. This right may be held by a foreigner permanently domiciled in Indonesian or a foreign legal entity having a representative office in Indonesia, and may not be mortgaged.

Right of Use (Hak Pakai) This is the right of use over state-owned (crown land) or property owned by public or private persons/entities for a specific purpose for (generally) a finite period and occasionally for an indefinite period. This land right may not be sold, exchanged or transferred unless explicitly stated in an agreement.

The main points regarding this subject are that there are actually two types of Leasehold.

In case of Hak Sewa it’s an agreement between two individual persons and the government is not involved.

In case of Hak Pakai, the agreement is registered in the Badan Pertanahan Nasional Office. For the durance of the period, the Right of Ownership of the Land Ownership is temporarily transferred to the Government.

The advantage of Hak Pakai is that the document can be used for bank (credit or guarantee) purposes and it’s more save then Hak Sewa because you actually rent your property from the State.

In both cases you can resell (“overcontract”) the agreement as long as this right it is specifically mentioned in the agreement. Again the Hak Pakai status is a better option. The shorter the remaining period the “cheaper” the lease. But as long as prices in Bali rise this should not be a too big problem.

Of course there is the right of extension of the lease period as long as this is mentioned in the original agreement. This should be described accurately because if not, the owner will be able to “rip you off” for the next period. Benefit for the owner will be the fact that he will be the proud new owner of your well maintained beautiful villa with pool.

OWNERSHIP

In case of Hak Sewa the Owner always stays the Owner.

In case of Hak Pakai the owner is temporarily the state. After this period the ownership goes back to the original owner.

In both cases when the title ends you have to get out of the land and you will lose your right of ownership of the building on the land.

This is the most discussed subject by foreigners who wants to invest in building their own property. This article will explain to you how the process works regarding obtaining a building permit in Bali. Please be aware that each regency in Bali has different government rules in processing building permits. Just like on Denpasar regency has different goverment rule to process the building permit.

The building permit in our country is called IMB ( Ijin Mendirikan Bangunan ) Herewith we give you the building permit process in Badung regency in bali - Indonesia, . . .

Visit the UPT ( Dinas Urusan Pelayanan Terpadu ) in order to ask for the Building Permit Form.

Make The building permit Drawing, just follow the government standard drawing.

Fill in the form and find the neighborhood signature, on the left side, right side, back side and front side ( usually on the front side is Road = no need to find the signature )

Find chief of Banjar district signature, chief of Desa district signature, and Sub head of government office on district signature.

Discuss The building permit drawing to the government staff office, and need to sign as approval drawing.

When the building permit drawing approve and apply building permit documents to the Cipta Karya ( government office for building department )

Next step is wait for site inspection from government office. The government office will call you.

When the site inspection is approved, the government office staff will call you in order to do the payment based on their table chart.

The developer goes to the government office administration department in order to do the payment of the building permit, and after that the developer has to wait for the IMB plate to be issued maybe one or two weeks later.

When you have received your IMB plate and IMB documents you can start building. Now you are sure of a safe legal situation.

If you have any questions regarding building permits in Bali please contact BaliDreamHouse for more information.

Construction of a second Bali airport, is expected to particularly impact on beachfront property investment opportunities in the north Bali Lovina Beach area with its beautiful tourist attractions and relaxing lifestyle.

Bali´s Governor Made Mangku Pastika has confirmed that Bali will move ahead with plans to build a second airport near its northern shore and the plans have been endorsed by both the Vice President and the Minister of Culture and Tourism.Beachfront property prices for foreigners are currently low compared to other parts of Bali, already prompting many overseas investors to purchase villas and apartments in Lovina and the second airport plans are expected to stimulate property values in the mid term.Northern Bali is home to a number of popular tourist destinations, such as Lovina beach, Singaraja, and the twin lakes in Bedugul in Gianyar. At Lovina, pastimes such as eco-tourism, dolphin watching, snorkelling, scuba diving, visiting hot springs, picturesque waterfalls, temples and historic heritage sites are already attracting increasing numbers of tourists.Graham Stott, Project Director of the Lovina Beach Resort - one of the biggest developments in the area, on two hectares of land with 200 metres of beachfront and lush tropical gardens - said that whatever happened with the new airport, now was the time to invest because property prices could only increase."Lovina is less humid than the rest of Bali and tourists are flocking here in increasing numbers," Stott said. "North Bali and Lovina's distance from the south has kept land prices low and there are ample amounts of prime beachfront and hillside land on offer. When you add the new airport in North Bali to these considerable advantages you have an ideal investment environment."The Lovina Beach Resort, currently under construction, will be Lovina's only five star absolute beachfront accommodation, and a range of accommodation is now available for investment purchase, at pre-release prices.The Lovina Beach Resort, right on the beachfront, consists of 32 luxury apartments, 16 villas and two penthouses. A number of investors from around the world have already realised the Lovina Beach Resort opportunity which includes solid rental returns, potential capital appreciation and a fully serviced luxury lifestyle environment."There are few places in the world where you can invest in five-star absolute beachfront property, with full flexibility to live in or rent, and the Lovina Beach Resort is one of them."

The chairman of the Hanno Group and owner of C151 Resorts, winner of this years International Business Awards says that Bali, like so many destinations in Asia, continues to see steady growth in the tourism sector despite global slow downs.

Real Estate prices in places like Bali, where there is a limited supply of prime property will continues to feel the pressure of both foreign and domestic investors vying to get a foot in a market says Soth. Bali continues to see tourism figures increase dramatically and demand for luxury accommodation grow steadily.

The Biggest issue now confronting local governments and developers alike is the strain on infrastructure, the development of which has not kept pace with the rapid growth in tourism both from domestic and foreign arrival.

Bali is currently suffering from all the symptoms of any place that has grown to fast without adequate planning. The Airport, roads, sewage treatment, water and electricity supplies are all becoming stressed.

Looking ahead there is still lots of opportunity to develop in Bali. However, this will require a growing cooperation between the private and government sectors, to address current problems and initiate solutions.

Are Bali developers and the local governments prepared to work together to tackle these issues. They have no choice. Both are facing the same gridlock.

October 8th was a mark for the beginning of construction of the Sea Sentosa, Saxon Looker's latest beachfront development on 2.8 hectares in Canggu's Echo Beach.

Italian architect Giacomo Passera, one of Bali's most accomplished architects Putu Edy Semara, and the creator of the vertical garden wall Patrick Blanc, will all contribute to the construction processes.

The result is expected to be a unique amalgamation of sophisticated Italian design, vertical garden, Balinese Culture and world-renowned art, including four beachfront international restaurants located just within the resort area.

Slated to open in 2012, the Sea Sentosa is a large scale development comprising 70 private apartments ranging from one to three bedrooms and penthouses, overlooking panoramic Indian Ocean views.

Bali is a sought after location to live and the real estate market is one of the strongest in Bali due to rapidly expanding tourism. This isn’t surprising when you realise there are so many beautiful locations and attractions in Bali including the well known Bali Safari Park, Waterboom, Tanah Lot, Discovery Mall, Gidgit, Bali Zoo, Sobek Rafting Site, Cultural Park, Butterfly Park, Double Six beach, DreamLand. Add to this the warm climate and Bali is a destination with plenty to keep you busy.

If you are looking to buy or sell property in the Bali area then the very first thing you need to organize is a professional Bali Real Estate agent. Choosing an established local agent can make all the difference between a painless or painful real estate experience. Not only will they know everything that needs to be known regarding the districts and areas, but also have valuable information about the local economy.

Choosing A trusted Bali real estate agent is rather like choosing a tour guide. They know what is worth seeing, who’s who and the interesting places to go. A reputable agent will have formed valuable connections and get things done quickly, they haven’t been in the business for years for nothing. Check also out our facility whereby if you register you receive an email alert as soon as a new property comes onto the market.

BaliDreamHouse.com is a listing service containing information on houses and villas for sale and for rent in each area and price range. From experience we will be able to identify the kinds of neighborhoods that appeal to potential buyers and provide details on facilities and amenities nearby, such as schools and transportation links. An experienced BaliDreamHouse agent is aware of the selling points of the area and the types of properties that come up for sale there.